Stocks closed higher Friday, with the Dow logging its longest weekly winning streak in over two decades, thanks to optimism over U.S.-China trade talks in wake of reports that the negotiations have been extended beyond the original schedule.

How did stock indexes fare?

The Dow Jones Industrial Average
DJIA, +0.37%
rose 181.18 points, or 0.7%, to 26,031.81, finishing above the 26,000 mark for the first time since Nov. 8. The S&P 500 index
SPX, +0.14%
added 17.79 points, or 0.6%, to 2,792.67 and the Nasdaq Composite
COMP, +0.11%
advanced 67.84 points, or 0.9%, to 7,527.54.

The Dow posted a weekly advance of 0.6% for its ninth straight week of gains, the longest such run since May 1995, according to the Dow Jones Data Group. The S&P 500 climbed 0.6%, up for a fourth straight week, and the Nasdaq rose 0.7%, also notching its ninth weekly gain, its longest since May 2009.

What drove the market?

Trade-related headlines continue to be the main driver. U.S. and Chinese negotiators plan to continue discussion next week with Chinese officials extending their visit to Washington, D.C., by two days, according to media reports. President Donald Trump also told reporters that there is a high possibility of a bilateral deal following his meeting with China’s top trade negotiator, Vice Premier Liu He, on Friday.

The talks are aimed at avoiding an increase in tariffs on Chinese imports set to occur on March 2, at 12:01 a.m. Earlier this week, Trump told reporters that the March 2 deadline isn’t a “magical date,” giving investors hope that the deadline will be extended, at least until a meeting can be arranged between Trump and Chinese President Xi Jinping, some time in the coming weeks.

New York Fed President John Williams, a voting member of the central bank’s interest-rate committee, gave a talk on the relationship between the unemployment rate and inflation, which economists have worried has broken down in recent years. Williams argued that the relationship is “alive and kicking,” which means that the Fed needs to be “vigilant” to the prospect of inflation.

Richard Clarida, the vice chairman of the Fed, hinted at a possible change in the Fed’s inflation strategy by discussing the contrasting between the current strategy which treats persistent shortfalls of inflation from the 2% target as “bygones,” to “makeup” strategies, where the central bank could target average inflation over several years.

What were analysts saying?

Investors are sensitive to trade news and stocks trimmed gains during the session when doubts emerged over how close the two sides are to a deal, according to Mike Antonelli, an equity sales trader at Robert W. Baird & Co.

“There’s a slew of China related headlines bouncing around the market right now,” he said. “The market is trying to interpret whether any progress is being made at all [and] it’s getting tired of talk and wants action.”

“The market is in a precarious position, bumping up against highs not seen since last fall. This could be a textbook wall of worry where the market climbs despite the negative forces its facing,” Mary Ryan, senior equity options strategist at E-Trade Financial Corp., said in a note.

“Trade is the likely catalyst to tip the scales in either direction, and there are three scenarios: If negotiations crumble, we could get a pullback, if they strike a deal we could see a breakout, and anything in between could be a jolt in either direction,” she said. “All these outcomes carry at least some risk of a pullback, so an uptick in volatility could be in the cards.”

Stamps.com Inc.
STMP, -0.37%
shares cratered 58% after the company announced the end of its exclusive partnership with the U.S. Postal Service. Management said that ending the deal was part of an effort to work with other shipping providers, but would lead to a sharp drop in earnings in 2019.

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